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Investment idea - AutoZone
5 march 2015

AutoZone (AZO) the second-largest US retailer of automotive parts and accessories.

The company recently released strong financial results for Q2 2015. Quarterly revenue increased by 7.7% y-o-y, outpacing expectations by 1.2%. AutoZone demonstrates robust results both due to organic growth (LFL sales advanced 3.6% y-o-y) and the merger with Interamerican Motor Corporation, a major US distributor of parts for imported cars. Operating profit was up 7.1% y-o-y, while operating margin remained unchanged at 16.9%. The company opened 42 stores in the reporting quarter. Currently, AutoZone operates 5,476 stores.

The company generates a significant cash flow, allowing it to buy back its own shares. AutoZone spent USD 326 mn on buyback program in Q2. The company plans to spend USD 544 mn for this purpose in the near future.

We believe that trend toward growing demand for spare parts will continue due to recovery of the global economy, which, along with purchase of high-quality assets, will improve the financial performance of AutoZone. All of this, alongside the buyback program, will boost the company’s share price in the mid-term. Our mid-term fundamental valuation of AutoZone (AZO) shares is USD 700. We assign a Buy recommendation to the name in the mid-term. The short-term technical target is USD 670.

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Investment idea - AutoZone

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